Illinois Governor Ends Controversial Business Tax Loophole

Gov. Bruce Rauner ends the tax break for firms that add jobs in one place, but cut them elsewhere.

Gov. Bruce Rauner is halting a practice that let dozens of companies collect millions of dollars in tax breaks for creating jobs at one office while eliminating a greater number of jobs at another location.

Though it is common for large companies to operate from multiple locations, the state's flagship jobs program long allowed companies to treat every location, division or subsidiary as an independent operation.

This practice was highlighted in a Tribune investigation, published in October, that found at least 37 agreements in which Illinois companies were rewarded with tax credits after hiring employees in one location while firing a far greater number of workers at another site.

Rauner's announcement this week is part of a broader overhaul of a state initiative dubbed EDGE -- short for Economic Development for a Growing Economy -- and launched in 1999 by then-Gov. George Ryan as a way to create jobs and compete with other states.

The EDGE program has grown into a billion-dollar giveaway hobbled by widespread failure and scant accountability, the Tribune reported. The Tribune found that the EDGE program has awarded millions of dollars to companies that never hired an additional employee; doled out millions more to businesses that eliminated jobs and became smaller; and allowed some companies to reap lucrative tax credits, then relocate to other states without penalty.

At a time when the Republican governor and Democratic legislative majorities are immersed in a monthslong budget impasse, the importance of every tax dollar looms even larger. Every tax break awarded to a company is a dollar not collected to fund basic public services like education, transportation and health care.

The Rauner administration said in a statement Wednesday that the governor wants to "ensure a more fiscally-responsible approach" to the way future tax credits are awarded.

The administration's changes in the EDGE program effectively reboot the use of tax incentives.

Rauner, who was critical of the program before taking office in January, had already stopped awarding tax credits for companies that only retained employees rather than added workers.

His latest initiative will prevent companies from signing up repeatedly for deals and turning what was supposed to be a 10-year incentive into a long-term subsidy.

Additionally, the state is reopening 40 pending applications that have been on hold during the state's budget gridlock and is clearing the way for new applications. Newly accepted companies won't be able to collect any breaks until the budget fight is over, the administration said. The announcement also revealed that, once there is a budget deal, the state plans to reinstitute tax credits for the film industry, another type of incentive that had been shelved during the fiscal impasse.

The use of tax credits has been the centerpiece of debate by state legislators for many years. While many lawmakers in recent years have raised concerns about the effectiveness of tax breaks, proponents such as the Illinois Chamber of Commerce maintain that state subsidies are a vital tool that has helped lure new companies and more jobs that might otherwise have landed in other states.

Although the Department of Commerce and Economic Opportunity, which oversees the EDGE program, has routinely published job creation numbers linked to the program, officials have never conducted a detailed analysis to gauge performance.

In the first comprehensive analysis of 783 EDGE agreements, the Tribune found that 2 of every 3 businesses that completed the incentive program failed to maintain the number of employees they agreed to retain or hire. The Tribune also documented that 79 current or former EDGE participants have reported eliminating 23,369 jobs through layoffs and closures since entering the program.

One key Tribune finding outlined how a single company could cut a deal with the state to collect tax credits based on job retention or creation at operations at one site but without regard to cuts at another site.

Under the EDGE program, every division or subsidiary of a company has been designated by the state as an independent operation. Business leaders successfully lobbied for this distinction in 2003 as part of the Corporate Accountability for Tax Expenditures Act, which established how EDGE credits were distributed and monitored.

Abbott Laboratories, one of Chicago's largest employers, has been one of the major beneficiaries of this longtime practice, state records show. Abbott is based in North Chicago in Lake County but operates numerous offices, laboratories and distribution facilities statewide. About 25 miles away, in Des Plaines, is Abbott's molecular diagnostic division, which joined the EDGE program in 2004.

The Des Plaines division, which employed 260 workers at the time, agreed to hire an additional 50 employees and invest $36 million into workplace improvements during the next 10 years. The division exceeded its hiring goals, state records show, and added more than 100 new full-time positions.

As a result, the commerce department awarded the division about $14.5 million in tax breaks. Public records do not disclose whether Abbott claimed the credits.

But even as Abbott added jobs in Des Plaines, officials from the company headquarters in North Chicago in 2011 announced the layoffs of 1,000 employees statewide. Since then, Abbott's Illinois workforce has experienced numerous layoffs, state records show.

"The 2014 tax year marked the completion of the company's EDGE agreements," Abbott said last month. "Abbott has complied with all its EDGE program obligations, which were determined on a project-by-project basis."

Deals like the one given to Abbott will no longer be approved, the Rauner administration said, but the state will honor existing agreements.

The changes announced by Rauner did not address one of the Tribune's other findings -- that the program is marred by major gaps in transparency.

For example, companies are required to file an accountability report to the commerce department every year they are in a 10-year agreement, but only the first five years are publicly available. Without the final reports, the public cannot readily determine whether a company met its job goals.

Another gap is that the public is not allowed to know if a company took a tax break or when. The state reveals only that an award was available -- not the actual amount a company took. The state claims the tax credits are confidential even though they involve public dollars.

Franks assailed the program for failing to show whether Illinois taxpayers benefit under a system that can give away $100 million a year in breaks to companies.

"I don't think the EDGE credit program works," said Franks, who sponsored the 2003 corporate accountability law and co-chaired a House study last year on state tax policy. "I think it's a loser, a dead-bang loser."